A Ukrainian Politician Questions Swiss Arrest

By MICHAEL WINES

Published: February 15, 1999

KIEV, Ukraine, Feb. 12—
Pavlo Lazarenko, the former Ukrainian Prime Minister, now a member of Parliament, party leader and presidential candidate, says someone is out to get him. Actually, he says the current President of Ukraine, Leonid Kuchma, is out to get him.

How else to explain what befell Mr. Lazarenko last Dec. 2?

The facts are simple enough. As Mr. Lazarenko tells it, he was crossing the Swiss border into Basel (a trip to meet lawyers) in a Mercedes (not his) when the Swiss police seized his Panamanian passport (a convenience for frequent travelers like himself) and accused him of laundering millions of dollars through Swiss bank accounts (Ukraine's confiscatory tax laws are driving perfectly good money into offshore havens).

The press in Ukraine's capital, Kiev, has since been filled with leaked accusations -- about sweetheart deals involving sales to the Government of prefabricated housing; about a curious swap of cows for silicon manganese, a tough alloy used in industrial products; about Mr. Lazarenko's role in granting certain companies breathtakingly lucrative monopolies on the sale of natural gas.

The sum of these reports is that Mr. Lazarenko has supposedly been siphoning Government money into his offshore accounts for years -- long enough, some reports charge, to make him a billionaire.

Lies, all lies, he said in an interview a few days ago. Or if true, completely legal.

Mr. Lazarenko said he plans an announcement on Wednesday that will make clear his adherence to Ukrainian law. In the meantime, ''I can absolutely state that I have not violated any law of Switzerland, and that this is nothing but political harassment,'' he said.

Whether he is guilty or not, few doubt that politics played a major role in Mr. Lazarenko's arrest. High-level corruption is epidemic in Ukraine, but serious investigations of corruption are rare and arrests like this one are almost unheard of without good political cause. Mr. Lazarenko has been giving the Kuchma Government cause ever since the day Mr. Kuchma dismissed him as Prime Minister 20 months ago.

Like most of Ukraine's political kingpins, Mr. Lazarenko and the President both sprang from the same east Ukrainian region of Dnepropetrovsk, an industrial stronghold during Soviet times. Now 46, Mr. Lazarenko started work as a driver on a collective farm. In short order he ran the farm, then Dnepropetrovsk's agricultural industry and finally, in 1992, the entire region.

By the time Mr. Kuchma selected him as Prime Minister in July 1996, Mr. Lazarenko had been elected to Parliament and accumulated his own power base. Precisely why their relationship soured is not clear; Ukrainian news reports suggest that Mr. Lazarenko proved too headstrong, and increasing reports of his involvement in corruption may have proven embarrassing as well.

Within months, Mr. Kuchma was publicly stating his dissatisfaction. And by June 1997, Mr. Lazarenko's term in high office was over.

Mr. Lazarenko wasted no time seeking revenge. His personal political party, Hromada, allied with leftists last year to sink Mr. Kuchma's legislative agenda, and his presidential candidacy is rooted in criticism of the Kuchma Government.

Mr. Kuchma's response -- mostly swats at pro-Lazarenko newspapers and anti-Lazarenko reports on state television -- seemed ineffective. But since December, Mr. Lazarenko has been all but buried under a landslide of leaked accusations that could only come from Mr. Kuchma's investigators in the state justice ministry.

Ukrainian politicians have made bribery and kickbacks a growth industry. A Cabinet minister's charge to apply for a cellular-phone license last year, for instance, was $50,000, with $20,000 kicked back to the individual who passed the bribe for his company, an American familiar with the details of the case said.

State-owned industries routinely buy raw materials and sell their output via Government-blessed middlemen, a practice tailored for bribery and price manipulation. Because Mr. Kuchma has barred the Government accounting office from auditing budget revenues, the transactions are mostly exempt from scrutiny.

The recently elected speaker of Parliament, also a Kuchma opponent, was investigated for the mysterious disappearance in 1994 of most of $70 million in American agricultural credits. Prosecution was impossible; Ukrainian law grants immunity from criminal prosecution to all elected officials.

The Parliament, which had refused to lift that immunity during the inquiries, celebrated the speaker's ascendancy last July by wiping the debt off Ukraine's books.

Among Ukraine's 50 million people, only seven declared an income of more than $500,000 in 1997. Nobody admitted making more than $900,000.

In this environment, Mr. Lazarenko's arrest is being hailed as an uncommon masterpiece of gumshoeing by Mr. Kuchma's justice ministry, which freely admits giving the Swiss the guts of their case.

For example, Swiss investigators found that during Mr. Lazarenko's term as governor, a Parliament deputy and close political ally, Mykola Agafonov, struck a very poor deal with a Netherlands livestock trader. Mr. Agafonov gave the livestock trader 64,000 tons of silicon manganese, worth about $32 million. The trader gave Mr. Agafonov 8,400 head of cattle, worth about $10 million.

But according to a member of the Parliament committee that investigates corruption, Hryhoriy Omelchenko, the deal did not end there. On instructions of Mr. Agafonov and others, he wrote last month, at least $12.9 million was shifted from the trader's bank account to a Zurich account that investigators say belongs to Mr. Lazarenko. The trader has confirmed the cows-for-metal swap, but says it broke no laws. Mr. Lazarenko has said he had nothing to do with the deal.

If the reports are to be believed, such transactions only accelerated during Mr. Lazarenko's tenure as Prime Minister. In that post, Mr. Omelchenko contends, Mr. Lazarenko ordered the Government to buy prefabricated houses at inflated prices from a Panamanian firm controlled by a former Lazarenko aide. ''I had nothing to do with that,'' Mr. Lazarenko said in the interview.

The Swiss are also reported to be examining Mr. Lazarenko's decision as Prime Minister to grant one Ukrainian firm, United Energy Systems, the rights to supply natural gas to one third of Ukraine.

The firm is connected to a leading politician in Mr. Lazarenko's party, Julia Timashenko. Reports in The New York Times and elsewhere, which Mr. Lazarenko has denied, have quoted diplomats and businessmen as saying that the arrangement with United Energy Systems has netted him $200 million a year.

Mr. Lazarenko, whose own financial disclosure reports show that he has no outside income and owns but one car, a much-maligned Russian Lada, has lately suffered dwindling political fortunes. Ms. Timashenko, who is called an up-and-coming politician, resigned her leadership post in the party last month and publicly broke with her old ally. The drumbeat of bad press has taken its toll.

''In 1998 on the central TV station -- TV 1 -- Lazarenko was blamed 217 times, 217 times in 217 days,'' he said. ''Everyone knows Lazarenko in the state, and people start thinking a different way.''

But it would be unwise to count Mr. Lazarenko out. For while he spent less than a year in Mr. Kuchma's shadow, he said in the interview, he learned a great deal about how favors were traded in exchange for political support.

On March 1, he said, he intends to tell it all to prosecutors. ''How money was collected for election campaigns, how banks and plants were taxed, and where the money goes,'' he said. ''I know the bank accounts of these people. And I shall name all the names and accounts of the people supporting the President.''

Photo: Pavlo Lazarenko, a Ukrainian politician accused of laundering millions through Swiss bank accounts, called the charges ''political harassment.'' (James Hill for The New York Times)